Anthony Albanese warns Reserve Bank as interest rates are predicted to jump FOUR more times

Anthony Albanese warns Reserve Bank boss not to ‘overreach’ as interest rates are predicted to jump FOUR more times this year

  • Anthony Albanese has told the RBA not to ‘overreach’ amid imminent rate hikes
  • RBA Governor Philip Lowe indicated that the cash rate would increase by 2.5%
  • He admitted that the Reserve Bank had previously ‘over insured’ the economy 

Anthony Albanese has cautioned the Reserve Bank not to ‘overreach’ as it warns mortgage-holders further interest rate hikes are imminent. 

Governor Philip Lowe indicated that the cash rate would need to increase by at least 2.5 per cent in the coming months, but that number could climb over 3 per cent. 

The Prime Minister expressed his concern over the hikes and the ‘real pressure’ it would place on Australians. 

‘It’s going to be tough. And we have real economic headwinds,’ Mr Albanese said on Melbourne‘s 3AW on Wednesday.

Anthony Albanese (pictured) has advised the RBA not to 'overreach' amid further interest rate hikes

Anthony Albanese (pictured) has advised the RBA not to ‘overreach’ amid further interest rate hikes

‘The Reserve Bank will make its decisions based upon their assessment of where the economy is at. But they need to be careful that they don’t overreach as well.’

‘Of course, the Reserve Bank declared a while ago, and they’ve conceded the error that interest rates would, would stay at the extraordinarily low levels where they were for a period of years up to 2024, and that hasn’t been the case.’

Radio host Neil Mitchell replied that the hikes ‘have hurt people’ and asked the Prime Minister if he was ‘making sure’ the RBA didn’t ‘go too hard this time’.

‘Well, they need to make sure that they get the assessment, right but there are some circumstances that could not have been foreseen,’ Mr Albanese said. 

Dr Lowe has suggested a rise of at least 2.5 per cent as a ‘neutral target’ but that’s considered on the lower end compared to the 3 per cent or higher predicted by other economists.

There are also hints that there would be four more rate hikes before the end of the year, but the Prime Minister said that would be ‘the more pessimistic end of the forecast’.

Dr Lowe admitted, in hindsight, that the RBA may’ve ‘over insured’ the economy during the pandemic. 

‘With the benefit of hindsight, it could be argued that we took out too much insurance. But that’s the nature of insurance,’ he said.

‘In the highly uncertain environment of the time, the right policy choice was to err on the side of too much insurance, rather than too little insurance.

‘I recognise though that while this approach meant we avoided some damaging, long-term scarring, it has contributed to the inflationary pressures we are now experiencing.’

Governor Philip Lowe indicated that the cash rate would need to increase by at least 2.5 per cent in the coming months, but other economists have predicted the rate will rise by 3 per cent (pictured, RBA headquarters in Sydney)

Governor Philip Lowe indicated that the cash rate would need to increase by at least 2.5 per cent in the coming months, but other economists have predicted the rate will rise by 3 per cent (pictured, RBA headquarters in Sydney) 

Dr Lowe (pictured) conceded that the Reserve Bank had possibly 'over insured' the economy contributing to current 'inflationary pressures'

Dr Lowe (pictured) conceded that the Reserve Bank had possibly ‘over insured’ the economy contributing to current ‘inflationary pressures’ 

Banking giant ANZ is now predicting borrowers will cop four 50 basis point interest rate rises by November – with the country’s major banks expecting the cash rate to settle by 2023 once inflation comes under control. 

The big four banks on Tuesday predicted Australia’s Reserve Bank cash rate will more than double from its existing three year high of 1.35 per cent to a 10-year-high of 3.35 per cent by Melbourne Cup Day.

ANZ head of Australian economics David Plank predicted the RBA would lift rates by consecutive 0.5 percentage points in August, September, October and November – and keep rates at that level throughout 2023 and 2024.

‘We think the RBA will take the cash rate target to a restrictive setting of above three per cent by late 2022, more than 12 months earlier than our previous forecast,’ he said.

A two percentage point increase in mortgage rates by November would see a borrower with an average $600,000 mortgage owe $708 more a month in repayments as the RBA cash rate reached the highest level since October 2012.

But Mr Plank said there was an outside chance the Reserve Bank would raise rates by 75 basis points at one of its meetings this year. 

‘We do think a move of more than 50 basis points in August or September is a very real possibility, while not the central case,’ he said.

‘This could be a more of 75 basis points, or even 65 basis points if the RBA wanted to ’round’ the cash rate target to 0.25 per cent.’

With inflation set to soon hit the worst level in 32 years, ANZ has updated its forecasts to have the Reserve Bank cash rate more than doubling from 1.35 per cent now to a 10-year-high of 3.35 per cent on Melbourne Cup Day (pictured is the Seven Hills branch in Sydney's west)

With inflation set to soon hit the worst level in 32 years, ANZ has updated its forecasts to have the Reserve Bank cash rate more than doubling from 1.35 per cent now to a 10-year-high of 3.35 per cent on Melbourne Cup Day (pictured is the Seven Hills branch in Sydney’s west)

ANZ is the only big four bank whose forecasts are now in line with the 30-day interbank futures market, which is predicting a 3.35 per cent cash rate but by December

ANZ is the only big four bank whose forecasts are now in line with the 30-day interbank futures market, which is predicting a 3.35 per cent cash rate but by December

What the major banks are predicting

COMMONWEALTH BANK: cash rate to rise by 0.5 percentage points in August and reach 2.6 per cent by November 2022

Rate increases of 0.5 percentage points in September and 0.25 percentage points in November

WESTPAC: cash rate to rise by 0.5 percentage points in August, hitting 2.6 per cent by February 2023

Rate increases of 0.25 percentage points in September, November and February

NAB: cash rate to rise by 0.5 percentage points in August and reach 2.6 per cent by February 2023

Rate increases of 0.25 percentage points in September, November and February

ANZ: cash rate to rise by 0.5 percentage points in August and hit 3.35 per cent by November 2022

Rate increases of 0.5 percentage points in September, October and November

Source: RateCity 

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Since May, Australian borrowers have copped 1.25 percentage points of RBA rate rises – with the subsequent increases in June and July marking the steepest monetary policy tightening since 1994.

Should ANZ’s forecasts come true, Australian borrowers would have copped 3.25 percentage points worth of rate increases in six months – the steepest increase since the Reserve Bank began publishing a target cash rate in 1990. 

ANZ is the only big four bank whose forecasts are now in line with the Australian Securities Exchange’s 30-day interbank futures market, which is predicting a 3.35 per cent cash rate but by December.

Even so, its predictions for rate hikes in 2022 are even more aggressive than what traders are expecting. 

ANZ is expecting June quarter inflation data, due out on July 27, to show the consumer price index surging by 6.3 per cent – the fastest pace since 1990.

In a possible sign of things to come for Australia, New Zealand’s inflation rate in the year to June surged by 7.3 per cent, the biggest increase in 32 years.

ANZ is the only major bank to predict a cash rate of 3.35 per cent this year.

The other major banks – Commonwealth Bank, Westpac and NAB – have forecast a 2.6 per cent rate instead in either 2022 or 2023.

The Commonwealth Bank, Australia’s biggest home lender, is expecting a 2.6 per cent cash rate by November, based on a 50 basis point rise in August and September followed by 25 basis point move on Melbourne Cup Day.

Westpac has released new forecasts showing the Reserve Bank cash rate will peak at a nine-year high of 2.6 per cent by February 2023 and stay at that level until at least December 2025. 

Three of the big four lenders are banking on the RBA to be more concerned about inflicting pain on borrowers with high debt levels. 

What a surge in the cash rate to 3.35 per cent would mean for you

$500,000: Up $590 from $2,215 to $2,805

$600,000: Up $708 from $2,658 to $3,366

$700,000: Up $826 from $3,1010 to $3,927

$800,000: Up $944 from $3,544 to $4,488

$900,000: Up $1,062 from $3,987 to $5,049

$1,000,000:  Up $1,180 from $4,430 to $5,610

Figures are based on the cash rate rising from 1.35 per cent to 3.35 per cent, causing a popular Commonwealth Bank variable rate to surge from 3.39 per cent to 5.39 per cent 

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